Stock Analysis
- United States
- /
- Interactive Media and Services
- /
- NasdaqGS:META
Meta Platforms (NASDAQ:META) Has A Pretty Healthy Balance Sheet
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Meta Platforms, Inc. (NASDAQ:META) does carry debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Meta Platforms
What Is Meta Platforms's Debt?
The image below, which you can click on for greater detail, shows that at December 2022 Meta Platforms had debt of US$9.92b, up from none in one year. But on the other hand it also has US$40.7b in cash, leading to a US$30.8b net cash position.
How Strong Is Meta Platforms' Balance Sheet?
According to the last reported balance sheet, Meta Platforms had liabilities of US$27.0b due within 12 months, and liabilities of US$33.0b due beyond 12 months. On the other hand, it had cash of US$40.7b and US$13.5b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$5.81b.
Having regard to Meta Platforms' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$448.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Meta Platforms boasts net cash, so it's fair to say it does not have a heavy debt load!
In fact Meta Platforms's saving grace is its low debt levels, because its EBIT has tanked 28% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Meta Platforms can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Meta Platforms may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Meta Platforms recorded free cash flow worth 72% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
While it is always sensible to look at a company's total liabilities, it is very reassuring that Meta Platforms has US$30.8b in net cash. And it impressed us with free cash flow of US$19b, being 72% of its EBIT. So we don't have any problem with Meta Platforms's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with Meta Platforms .
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
What are the risks and opportunities for Meta Platforms?
Meta Platforms, Inc. engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide.
Rewards
Trading at 14.8% below our estimate of its fair value
Earnings are forecast to grow 13.16% per year
Risks
Significant insider selling over the past 3 months
Profit margins (19.9%) are lower than last year (33.4%)
Further research on
Meta Platforms
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About NasdaqGS:META
Meta Platforms
Meta Platforms, Inc. engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide.
Excellent balance sheet and fair value.
